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Emerging-market stocks have pulled back 16.4% from their April high -- and Mark Mobius could hardly be happier. "Our attitude is that this is a correction in an ongoing bull market and therefore an opportunity to add to our positions," he told Barron's last week. Mobius, a fixture in emerging-market bourses since Reagan was in office, manages $50 billion in assets for Franklin Templeton Investments.

The 75-year-old portfolio manager was a pioneering investor in China, India and Russia, and has been since the 1980s, when those countries got about as many visitors from Wall Street as Nigeria, Kazakhstan, Vietnam and the Ukraine do today. Now he considers those four countries the most promising of the 50 so-called frontier markets that Templeton invests in.

Mobius is snapping up stocks that he believes will grow with consumer spending, even in Egypt, where the MSCI Egypt Index is down 15.1% from its June peak, in response to the "Arab Spring" uprisings across North Africa. His Templeton Frontier Markets fund owns Orascom Telecom Holding (ticker: ORTE.Egypt), an Egyptian phone company with a monopoly in North Korea that Mobius says is turning out to be surprisingly profitable.

The $295 million Templeton Frontier fund lost 2.7% in the 12 months to Aug. 18. The larger, more mainstream Templeton Developing Markets Trust is up 3.5%, while the MSCI Emerging Market Index is up 2.5%.

Other funds are doing even better by keeping an eye not only on the growth story but also on the profitability of companies that trade on local exchanges. The Wasatch Emerging Markets Small Cap fund grew 14.6% over the past 12 months, more than any other global emerging-market fund. That rise came partly from shunning retailers in China. "There are just a lot of players competing for that growth, and it doesn't accrue to the shareholder," says portfolio manager Laura Geritz. Instead, she picked a couple of more profitable retailers in Indonesia. Her fund is down 5.5% for the year; the MSCI Emerging index is down 11.9%.

Some funds have been helped by what they avoided. The Virtus Emerging Markets Opportunities fund, which grew 12% over the past 12 months and is down just 1.35% for the year, shuns materials stocks and tech stocks. Portfolio manager Rajiv Jain considers them somewhat dependent on consumer spending in developed countries where consumer credit is shrinking. The Aberdeen Emerging Market fund has performed relatively well by avoiding companies that manager Hugh Young sees as suffering from poor governance.

The Bottom Line

Frontier and emerging-market funds are a way to buy into growth markets without having to worry about currencies and trading on overseas bourses.

THE STRENGTH OF REGIONAL FUNDS is that they invest with greater conviction in large countries like Brazil, which fell 21.6% from April 8 to Aug. 18, and spread risk around small nearby countries like Colombia, which fell 9.9% from June 8 to Aug. 18. William Landers, manager of the BlackRock Latin America fund, which is down 19.5% since Jan. 1 due mainly to large investments in Brazil, expects the country's stock market to achieve double-digit growth soon, because its banks are well capitalized and its exports are diverse.

Another regional play is the T. Rowe Price Africa & Middle East fund, which soared nearly 40% from Jan. 1, 2009, to Dec. 31, 2010, thanks partly to investments in Nigeria, Africa's most populous country, which has cleaned up its banking system and paid off most of its debt. But the fund is down 19.5% in the wake of revolts in other North African nations; that is 7.56 percentage points worse than the MSCI Emerging Markets Index's 11.94% decline during the same period. Chris Alderson, president of international equities at T. Rowe Price, expects frontier markets to start beating emerging markets.

A vote of confidence in frontier markets came Feb. 28 with the launch of the
Goldman Sachs N-11 Equity
fund (GSYAX), which follows the theory that the four BRICs -- Brazil, Russia, India and China -- will be upstaged by similar domestic-consumption themes in the smaller "next 11" countries such as Bangladesh, Egypt and Pakistan. But the Wall Street firm uses a smattering of both its BRIC and N-11 strategies in the Goldman Sachs Emerging Markets Equity fund. "The biggest risk a lot of clients face is not having invested enough in these 15 economies," says Don Gervais, global head of fundamental equity at Goldman Sachs Asset Management.

Of course, anyone looking to pare risk can buy an exchange-traded fund that tracks the MSCI index. The cheapest option is the Vanguard MSCI Emerging Markets fund. But the best-performing is PowerShares DWA Emerging Markets Technical Leaders fund, which is up 12.7% over the last 12 months and has fallen only 4.1% since Jan. 1. PowerShares owns just 100 stocks, but they are spread out across the Dorsey Wright Emerging Markets Technical Leaders Index, from Russia to Peru. That shows high conviction in markets as turbulent as these.

Passport to Growth

While developed economies are at a standstill, these 10 funds could be a ticket to gains.

Net flows

Returns*

Assets

last 12

Name/Ticker

1-Yr

3-Yr

(mil)

months (mil)

Wasatch Emerging Markets Small Cap /WAEMX

14.6%

16.7%

$886

$501

Virtus Emerging Markets Opportunities /HEMZX

12.0

9.6

1,932

1,340

Aberdeen Emerging Markets /GEGAX

5.9

4.5

211

38

Templeton Developing Markets Trust /TEDMX

3.5

2.7

3,045

-357

Templeton Frontier Markets /TFMAX

-2.7

N/A

295

208

Goldman Sachs Emerging Markets Equity /GEMAX

0.5

1.2

517

-110

Vanguard MSCI Emerging Markets ETF /VWO

0.6

3.0

44,797

14,939

PowerShares DWA EM Technical Leaders /PIE

12.7

0.5

237

217

T.Rowe Price Africa & Middle East /TRAMX

-7.9

-15.0

183

-24

BlackRock Latin America /MDLTX

-5.9

3.5

928

45

Notes: Assets and flows through July 31; for mutual funds, through Aug. 18; for ETFs, through Aug. 18.